Introduction: Acquisition is a corporate term used to represent purchase of another company and gaining the ownership of the company.
To show: Acquisition with contingent consideration.
Answer to Problem 1.7.2P
No entry will be passed because the probability is 90%.
Explanation of Solution
Acquisition is a corporate term to define buying all of another company and gain the ownership of the company.
There are four steps in acquisition of company
- Identify the Acquirer
- Determine the acquisition date
- Measure the fair value of acquiree
- Record the acquiree’s assets and liabilities that are assumed.
Identify the acquirer: for acquisition it is very important for acquiree’s to know the acquirer.
Following things should be kept in mind voting rights, large minority interest, governing body of combined entity and terms of exchange.
Determine the acquisition date of the company.
Measures the fair value of acquiree: the fair value of the aquiree as an entity is assumed to be paid by the acquirer. The price includes the contingent consideration, the costs of acquisition are not included in the price of the company acquired and expended.
Record acquiree’s assets and liabilities that are assumed: the fair value of all identifiable assets and liabilities of the acquire are determined and recorded.
Contingent consideration: contingent consideration is consideration given on the happening or non-happening of event. It is generally added in purchase consideration and increase goodwill.
Calculation:
Total Net Assets (A-B) 487000
Value Analysis
Total Price paid
575000
(-) Total fair value of Net Assets (487000)
Goodwill 88000
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Chapter 1 Solutions
EBK ADVANCED ACCOUNTING
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